Projections show inflation near 2 per cent target

The European Central Bank’s (ECB) Governing Council decided today to keep the three key ECB interest rates unchanged.

“Inflation is currently at around the 2 per cent medium-term target and the Governing Council’s assessment of the inflation outlook is broadly unchanged,” it said.

The new ECB staff projections present a picture of inflation similar to that projected in June.

Headline inflation is expected to average 2.1 per cent in 2025, 1.7 per cent in 2026 and 1.9 per cent in 2027, the projections show.

For inflation excluding energy and food, the ECB expects an average of 2.4 per cent in 2025, 1.9 per cent in 2026 and 1.8 per cent in 2027.

Economic growth is projected to reach 1.2 per cent in 2025, revised up from the 0.9 per cent forecast in June.

The growth projection for 2026 is slightly lower at 1.0 per cent, while the projection for 2027 remains unchanged at 1.3 per cent.

The Governing Council reaffirmed its commitment to ensure that inflation stabilises at its 2 per cent target in the medium term.

“It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance,” it said.

Interest rate decisions will be based on the assessment of the inflation outlook and the risks surrounding it, taking into account incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.

“The Governing Council is not pre-committing to a particular rate path,” it added.

The interest rates on the deposit facility, the main refinancing operations and the marginal lending facility will remain unchanged at 2.00 per cent, 2.15 per cent and 2.40 per cent respectively.

The ECB said the asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.

“The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises at its 2 per cent target in the medium term and to preserve the smooth functioning of monetary policy transmission,” it said.

Moreover, the Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries.

“This allows the Governing Council to more effectively deliver on its price stability mandate,” it added.